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MATTERS AT HAND: North Dakota needs lesson in property tax philosophy

It's time for a lesson in tax philosophy. You're getting it here because I'm a tax crank. Many years ago, a state senator named Grant Trenbeath asserted that I'd never met a tax I didn't like. Not true, I replied. The tax that I don't like is the...

It's time for a lesson in tax philosophy.

You're getting it here because I'm a tax crank. Many years ago, a state senator named Grant Trenbeath asserted that I'd never met a tax I didn't like.

Not true, I replied. The tax that I don't like is the property tax.

There are many good reasons to dislike the property tax, and I'll be happy to list them.

First, however, I want to stress that the property tax has its place. That place is to benefit property by providing services that secure and improve property, such as streets, sewer and water, law enforcement and fire protection.


It is when the property tax is extended beyond these purposes that its inherent evils become apparent.

Two of these involve the individual taxpayer.

First, property tax bears no relationship to ability to pay.

Second, the person who pays it can't influence the amount of property tax owed.

A third disadvantage of the property tax involves the tax collector. Property taxes are hard to collect, requiring an extensive bureaucracy and a lot of expense.

Even with this in place, however, the tax is somewhat arbitrary, based on a subjective assessment of what the property is worth.

Recent attempts to make the tax less subjective have created a different problem, and this is the crux of the current property tax revolt. The law requires reassessment of property based on sales of comparable parcels.

As a consequence, tax bills have gone up as property values have gone up. This happens even if tax rates don't increase.


Property owners thus become victims of an improving economy. Their property becomes more valuable, and their tax bills rise, even if they have no intention of selling.

The impact is greatest on those people who have property, but little income. Some of these are low-wage workers, but the largest number are elderly, retired people.

That doesn't mean that middle-income people are not affected, of course. Their tax bills go up with the value of their property, even if their incomes do not go up.

Here is a strike against the property tax as a moral issue. It is unfair.

Despite these problems, North Dakota has long relied on the property tax, and not only to benefit property. Instead, it's been extended to support public schools.

Here is the most egregious flaw in the system. Property values differ widely from place to place. Even the state's largest cities, now all relatively prosperous, have different property tax bases. Grand Forks, for example, has a smaller tax base than cities of similar size because so much property isn't taxed, and so many people work for public institutions that don't pay property taxes.

That's not the worst of it, however. Worse by far is that some school districts have far less value in property than others, and so they can't raise as much money from property taxes to support schools. The result is, the state's children don't have equal access to education.

As it happens, here lies the solution to the state's property tax dilemma. Funding for schools should be shifted away from local property taxes. Instead, the state should fund schools using those taxes that are based on the ability to pay, the income and sales taxes. Individuals can control what they owe for these taxes, by limiting purchases in the case of sales taxes and by decreasing earnings or increasing exemptions in the case of income taxes.


Using these taxes for schools would mean that the property tax could be used locally to benefit property. It follows that local governments would be in control of the level of these taxes, and that local taxpayers could vote them out of office if they raised taxes too high.

This, of course, would dispense with one of the meanest issues at the current legislative session, the effort to control property taxes by limiting local government's ability to raise them rather than by reducing the schools' dependence on them.

To review, property taxes should benefit property, and they should be levied locally. Schools should be funded by statewide taxes that are based on the ability to pay.

This would mean greater fairness for taxpayers, more local control of spending for programs that benefit property and, most important, more equal opportunity for students.

Jacobs is editor and publisher of ^^^^^^^^^^^^^^^^^^^^^^^^^the Herald.

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